ASIC has launched a new consultation on crypto ETFs – but only Bitcoin and Ethereum would be eligible under the proposed rules

  • The Australian Securities and Investment Commission (ASIC) is seeking input on rules which could see cryptocurrency exchange traded funds hit the ASX for the first time.
  • A new consultation paper, released Wednesday, aims to address whether crypto-assets are stable and secure enough to be treated like other listed securities.
  • Bitcoin and Ethereum are the only assets likely to meet ASIC’s proposed eligibility criteria, the paper says.
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The ASX is one step closer to hosting cryptocurrency-based exchange traded funds (ETF) after the launch of a new Australian Securities and Investment Commission (ASIC) consultation, which could help legitimise the asset class for countless funds and retail investors.

In a consultation paper released Wednesday, ASIC asks cryptocurrency stakeholders and other interested parties to address the pros and cons of allowing crypto-assets to be publicly traded as part of new exchange traded products (ETPs) — securities which can track an index of various assets.

While Australian retail investors and speculators have flocked to cryptocurrency investing in recent years, this market activity has been conducted in private exchanges, with no mechanism to directly invest in those assets through the ASX.

But thanks to international markets like the Toronto Stock Exchange listing the world’s first Bitcoin ETF, ASX executive general manager Max Cunningham has revealed the exchange “can’t ignore” the possibility of hosting crypto-asset ETPs in Australia.

The ASIC consultation paper hopes set the ground rules for crypto-asset ETPs in Australia, and suggests that crypto-assets not be lumped with traditional commodities or stocks, but instead fall under a totally new category of permissible underlying asset.

To reach that categorisation, the paper suggests eligible crypto-assets must prove they have reliable pricing mechanisms, high levels of institutional support, a robust spot market, service providers ready to keep those ETPs running, a regulated futures market, and “fair, orderly and transparent trading activity”.

It’s a tall order, and ASIC readily admits few existing assets seem capable of meeting the proposed criteria.

“At this point in time, in our view, the only crypto-assets that are likely to satisfy these factors are bitcoin (BTC) and ether (ETH),” the paper reads.

ASIC has also taken a circumspect view of the exchanges which facilitate the bulk of Australia’s existing crypto-asset exchanges.

“Market quality is also an issue as crypto-asset trading platforms are generally not required to have rules and practices to maintain fair, orderly and transparent markets, such as pre- and post-trade transparency rules and market surveillance systems,” the paper says.

ASIC suggests custodians of any eventual crypto-based ETP should also offer broad disclosures to investors, including advice on the regulatory and climatic risks associated with many crypto-assets.

And that’s if regulators deem crypto-assets worthy at all. The paper notes “the risk of crypto-assets being used to support criminal activity” including money laundering and the kind of Bitcoin scams which cost Australians $26.6 million in 2020.

On the meme-driven speculation endemic to many crypto-assets, ASIC notes “crypto-asset trading platforms are more susceptible to price manipulation risk than most other markets.”

“We are also aware of the real risk of harm to consumers and markets if these products are not developed and operated properly,” ASIC adds.

It is unlikely ASIC will give any crypto-assets a free pass on those stress tests. But there’s ample reason for Australia’s crypto-faithful to state their case, as the exposure of previously niche assets to the broader investing population could prove revelatory for cryptocurrencies worldwide.

Comments on the consultation paper are due July 27, with ASIC’s good practice information slated for publication in the third quarter of 2021.